High yield bonds: a golden source of income?

Returns on Gilts and cash may be pitiful, but high yield bonds are inflation
busting, says one Barings fund manager.

Baring High Yield Bond fund manager Ece Ugurtas thinks that although the sector rallied 17.4pc over the past 12 months, there are still plenty of opportunities out there for investors.

“The record low yields on government paper in some developed markets, namely the US and Germany, has made it difficult for fixed income investors to find sources of income,” she said.

“High yield remains one area which continues to display attractive income-generating qualities for yield-seeking investors.

“We believe that macroeconomic factors are the primary market drivers, and an active approach to portfolio construction can be key in mitigating some of the market falls and delivering strong returns during continued market volatility.”

Ms Ugurtas said that she thought income would continue to be a key factor in where investors chose to put their money in 2013.

“Returns on cash as well as government debt are expected to remain low this year, but our fund returned 8.7pc in the first half of last year alone.”

Such is the clamour for inflation-busting returns, the fund increased 80pc in size in the first seven months of 2012, reaching more than $1bn in value.

“As well as a favourable macro environment, the investment holdings themselves look good,” she said. “Corporate balance sheets are very healthy following the global recession. Companies have very little debt and a lot of cash compared to historic levels. On the whole the asset class is looking healthy.”

Ms Ugurtas believes asset allocation is key to maximising returns. She has low exposure to the UK, and has reduced her European holdings too. “We had a very high exposure to European high-yielding bonds last year, which paid off as this type of bond did very well. But it is not as good value as it was a year ago,” she said.

Key growth areas such as the US and emerging markets have a much larger weighting. In particular, Ms Ugurtas likes China, Latin America and Eastern Europe.

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.